Osborne can and should make tax cuts in the Budget

Feb 01 2011

The Budget is still a number of weeks away but that hasn’t stopped the furious speculation from getting underway: what exactly will be in Osborne’s Budget in March? With a huge deficit he will have to find ways to deliver on promises to make more spending cuts than tax rises, but will he offer any tax cuts? After hiking up VAT to 20 per cent to boost the coffers, Osborne needs to now give something back to disgruntled taxpayers.

John Redwood and Douglas Carswell were both on BBC Radio 4’s Today programme this morning, calling for tax cuts. Carswell asked if we could “afford not to have tax cuts”. Boris Johnson too has previously asked the Government to set out “a clear direction of travel” for reducing taxes in this Parliament.

The temptation, urged on by many, is to suggest that the rich should pay more taxes to plug the gap, but we know from the disaster of the 50p top rate of income tax that this actually loses the Treasury money. If we keep taxing the rich more than America, France and Germany, then we are going to put wealthy people off coming to the UK, investing in the UK and living in the UK. Matthew Sinclair and Dr Jonathan Scott released research last year showing that the 50p rate could mean a top combined marginal tax rate of 92 per cent for successful entrepreneurs on income earned, saved, invested in a company and passed on to children. The private sector in UK will not exactly be the innovative and job-creating environment that we need to kick-start the recovery with that kind of punitive taxation.

Osborne’s piggy bank is empty and he is gasping for a quick injection of money as a solution, but he shouldn’t imagine that tax rises are it. He needs to look seriously at making tax cuts and making tax fairer. Scrapping the 50p top rate of tax is a start but he needs to go further than that to take the suffocating tax pressure off millions of families. 2010 was dominated by discussion of spending cuts. Now that those cuts are starting to happen the focus is shifting to a serious discussion of tax cuts, with more and more members of the public demanding them.

In the run up to the Budget – and throughout the rest of the year – the 2020 Tax Commission will be meeting to discuss the case for radical tax reforms. Families and businesses in the UK are taxed far too much and the system is far too complicated. The Commission is looking at ways to address these problems. You can find out more about their work here.